Sophomore Jinx ?

Dominic Belley who I interviewed last year around this same time, detailed his second year in the business with a post on Namepros.

Dominic points out that year 2 was not as good as his rookie season. By detailing his second year he does newcomers a great service in my opinion.

Here is his post:

It has been a very tough year for me. What seemed easy in the first year has become a nightmare.

—

Already at the end of year one I was pretty much only trading 4L.com. I was having success and I wanted to continue on that path. I had to get rid of all my other domains so I started liquidating all of them.

First, I let expire all my 7N, 8N and 5L chips. These were bad investments. I never understood the Chinese market and on these I was just influenced by the market trend. I acted like a sheep and acquired a bunch of domains in these categories. That was a mistake and I did not put more money in chips since. I decided to cut my loss and let them all expire. I had around 80 domains of that nature. Loss $700 there.

I also had around 40 keyword domains left from my first year and a few I bought on GD Closeouts at the beginning of year 2. I added them all on Afternic and waited. I have managed to sell 3 of them. All dot com. PayForValue : $495, VeganCakeMix : $99, StudyPit : $60. I also sold around 20 domains here on NamePros between $10 and $20 in the Bargain section and a few on GoDaddy auction for $35-$50.

I only have 6 non-4L domains left in my account.

Over all, I have been lucky enough not to lose too much money with my bad investments. These few sales on Afternic and NamePros paid for most of my 7N, 8N, 5L and keywords that expired.

—

Now I want to talk about 4L.com. Not so much about what I did but more about how I feel.

The “what I did” part can be summarized in one sentence: I bought 4L on Namejet and NamePros and I sold 4L on NamePros and Namejet at a higher price. That is all there is to say about that. Nothing magic.

I prefer to talk about the “how I feel” part.

For starters, I realize now that I don’t make enough money for the level of risk I take.

Prices of 4L.com are very volatile. The risk is super high and I had a taste of that in 2016. Prices of 4L dropped drastically.

I bought a couple of chips at the worst time at the very beginning of 2016 in the low $2K. If I were to sell them today, after fees I would take a loss of $1000 on each of them. I know prices will never go back up to where they were so I know I will eventually have to take that hit.

I had a great year 2015, made a lot of money in my first year and I decided to jump up in quality. I stopped buying random 4L and shifted to Western Premium. I decided to invest massively into that category at the beginning of 2016.

There was not many of these on NamePros so I had to start buying on Namejet. I built an inventory of 50-60 Western Premium in the first quarter of 2016 when the prices were high and climbing.

My worst enemy: The 42-day auction lock at Enom.

When you buy on Namejet, most of the time the domain is registered at Enom and it has a 42-day auction lock. During that period, you cannot transfer nor push the domain.

So for a period of 42 days, I had to wait and could not flip the domains and that literally killed me. Just after buying a lot of domains the prices plummeted. I could not try to unload, all my domains were locked.

Once the major part of my domains were finally available for a push, it was too late. The damage was done.

Not only was I virtually losing $2000 on my 2 chips, now I was losing even more on newly acquired Western Premium.

I honestly never recovered from that. Mentally and financially.

I had two choices, either I was selling my domains at a loss or I was waiting for the price to go back up. That is what I decided to do and luckily for me, it happened 6 months later, in August. Bottom prices of Western Premium reached $500 again for only 1 week and I have been able to unload a lot of 4L during that short span. But I did not make any profit there, I was happy just to unload at cost to recover my money.

Actually the truth is that I lost money on most of these “at cost” sales. Being a Canadian, I also have to deal with the currency exchange rate and at the beginning of 2016 the Canadian dollar was very low. When I sold my domains in August it was much higher so I was selling at cost in USD but, in fact, once the money was converted back to CAD in my bank account, I had lost money.

So having the prices of 4L drop drastically added to the Canadian dollar getting stronger throughout the year was a nightmare for me. Pretty much impossible to turn a profit on the large inventory I built at the worst time.

Later in the year I found a little trick to avoid that 42-day lock problem. I started selling domain with a “Pre-Release” notice. So I was able to resell the domains immediately, removing the price movement risk encountered by the auction lock. It allowed me to flip my domains normally and start making real profit again.

—

In 2015 and beginning of 2016, flipping 4L for a profit was extremely easy, they were still emerging. It’s not the case anymore. Back then, I could buy a 4L and wait a few weeks for the price to climb, then sell.

This time is over. The uptrend is over. Prices are moving sideways.

Now if I want to make money I have to be patient. I have to wait for the right purchase opportunity and they don’t come as often.

I can’t talk for others, but based on my own experience, making money in 4L sector is now very difficult. Profit margins are smaller and there are not as many buyers. I used to only sell on NamePros but this year there was not enough buyers so I had to start selling on Namejet. I am now doing most of my sales on that platform. I have to price my domains higher because of their 15% fees but I still sell domain on Namejet for $500 that I am unable to sell for $425 on NamePros. I tried to contact Namejet buyers directly but never had any reply to my emails.

—

I wanted to write this summary because my second year was probably my last year as a domainer.

Similar to a lot of other beginners trying to make money in the domain sector, I failed. I did not fail in the sense that I lost money but I failed in the sense that I am not progressing anymore.

So I am here, at the crossroads, completely lost.

I only purchased 3 4L so far in 2017. I am on idle, slowly selling my inventory not knowing what to do next. I know I cannot continue doing only 4L because the risk is now too high. The small profit I make on a flip does not cover the loss I have to take when prices drop.

I wish I could move to generic one word or 2-keywords but English is not my first language. I don’t think it would be a smart move for me, I fear I would put too much money in bad keywords.

So I am kind of trapped in the acronym sector in which I don’t make any money.

—

People like financial stats and I don’t mind sharing so I will give a few numbers on my activities after two years.

Net profit in cash : $5,950 CAD (around $4,450 USD)
Net current inventory : 29x 4L.com which I currently value at a minimum of $11,000 USD.

All the money I will get from selling my inventory will be net cash. I built this inventory by reinvesting all the profit from previous sales.

The sad part is that my inventory is worth a lot less than what I paid for it, mainly because of the two chips. If prices drop more, my profit will be ever smaller.

The even sadder part is that if I were to sell my inventory at current value, it would give me a net profit of $15,500 for two years. You know what? I had pretty much the exact same profit amounts (cash + inventory value) after one year.

It means I have been struggling like crazy for a full year just to break even.

Is a profit of $15,500 USD good for 2 years selling domains?

It’s not that bad. But it’s not good knowing year 2 has been a zero return year. A lot of work and investment and stress for no profit. Just to recover my money.

This is why I am beginning to think it could be the time for me to leave the floor and put my time and efforts into something else where I could be successful. I don’t know. I will see how things go in the coming weeks.

Comments

Well, that is the domain business in a nutshell. All that talk about money in domaining and you can work from anywhere in the world in your underwear, sitting at the beach have a drink and watch the girls playing volleyball.. sorry I’m rambling.. Bottomline is you have to make money. If you spend a year 10h a day searching for gems on NJ and NP just to flip them for a couple of hundred bucks and break even at the end of the year (probably before taxes), then it is time to get a real job. Having an office job and making 50-60k a year is not a shame and probably the better choice. Since the Chinese are in the game big time the margins got crushed. You cant buy a 4L on NJ and flip it 2 weeks later if they charge you 15% commission and market moves sideways. That is not a viable business model. The industry lives on those great stories of guys who became rich because they owned great inventory. You know the usual 1%. All the others barely survive. I saw so many new kids come and go over the years…

I just want to point out that 99% of the guys that made a fortune and continue to do so are NOT selling to investors or flipping domains they buy 2 weeks later.

Domaining is like farming. You buy your seeds (domains), you plant them (in your inventory), you water them (put landing pages on them which are appropriate, monetize through parking or otherwise) and you wait…

When the time comes, you harvest your profits. But it can take years. Good things come to those who wait.

But just like in Farming, if you live in Michigan and you try to plant Oranges, you are going to lose all your money.

You can be a farmer if your domains make enough money with parking to pay for the renewals. Otherwise you’ll have to be creative, lease some names out or even sell some names to afford the cost of carry.
Which ones are likely to sell first? The best of your portfolio. So after a while you end up with a bad to average portfolio that costs you money and is not making you any. A farmer can harvest muliple times each year. You can sell your domain only once.

You are operating under the pretense that finding good domain names is scarce. In the current market there are incredible and ample opportunities to buy highly undervalued domain names in every corner of the market (as Rick Schwartz has been pointing out).

I’m not saying don’t sell, I’m saying understand what makes a valuable domain name and keep buying them, water them and harvesting the profits. Rinse and repeat.

> > Domaining is like farming.
You buy your seeds (domains),
you plant them (in your inventory),
you water them (put landing pages on them which are appropriate, monetize through parking or otherwise) and you wait

I didn’t know that Andrew is a poet too 🙂

A very good article, but 2 years is a very short period and hopefully Dom will update us after the completion of 3 years and many more to come.

I started back in 1999 when .com was $70 at some registrars and didn’t get any sales for more than one and a half year. However, as Andrew said I planted the seeds and water them regularly which enabled me to keep registering more names. This is a good business if anyone knows what they are doing and have a Plan B & C in case domains don’t sell at profit.

This is a great post and incredibly generous of Dom to publicly state these very personal details of his experience. Thank you Dom.

The one thing that I will point out, which is something I’ve said many times before, domain names are functional tools. They are business assets, branding assets, marketing assets. They are not commodities and those that treat them as such do so at their own peril (as Dom has seen and rightfully pointed out).

The ONLY thing that makes any domain name valuable is its ability to be sold to an end user. Does this domain name have a matching company or generic meaning that exudes commercial value? If not you are only playing a game of hot potato.

There are very few businesses on Earth that allow the opportunity that domain names do. Freedom, wealth, income, etc… But the key is end users. The key is identifying undervalued assets (not based on wholesale value or commodity value but based on the acquisition cost vs. the likely price it can be sold to an end user, taking into account the risk factor and down side if you are unable to sell it to an end user).

I regularly overpay (pay more than wholesale price or commodity price) for unique 4L.com or 3L.com domains because that particular domain has a higher than average propensity to be sold to an end user. This strategy has continually been successful and continues to pay dividends for us. If I pay 10% – 30% above what the wholesale/investor market would pay but I can reasonably expect to sell it to an end user over the course of the next 12 – 36 months for 300% – 1,000%, then my upside far outweighs my downside. If you are picking the right names, then you only need one out of 10 (or less!) to actually sell to an end user in order to turn a profit. And then the rest is gravy (meaning the other 9 names are now paid for and whatever you sell them for, even at a loss, you are already in profit territory).

The keystone of this strategy is doing the work. Hard work. Research. Qualifying each domain purchase to be sure there are multiple use cases, multiple possible end user buyers or at least one end user than you can definitively say MUST buy this domain at some point. And then go out and sell it (unless it would present a UDRP risk by doing so, in which case you just wait for them to come to you and make their path as easy as possible with BUY IT NOW pricing or a well designed landing page, etc…

Thank you Dom for a very valuable lesson and for making such a personal disclosure. You add value to this industry and I hope you stick with it. Feel free to reach out to me anytime for advice.

One more thing that becomes clear by reading Doms post: Domainers are no entrepreneurs but hustlers. Entrepreneurs actually have ideas, they build things, they create. They take risks, they have to be versatile and lean. Building a business from scratch is a completely different ballgame. Domainers try to move in first, they try to find an undervalued asset, and then hold it until an entrepreneur comes along. For a domainer a domain is the most important thing in business. For an entrepreneur it is just a tool. The amount of available domains that an entrepreneur can chose from when starting his business is probably far bigger than the amount of good CTO’s or developers he can chose from. Entrepreneurship is 100% hands-on. The buy and hold strategy that most domainers apply is almost completely hands-off.

I read a great statement lately that said: A hustler remains prisoner to his own system, and once he stops hustling, he stops earning. An entrepreneur, once he has built his own system, is able to walk away from it, come back many months later, and find it doing better than before he left.http://under30ceo.com/hustlers-vs-entrepreneurs-which-one-are-you/

Excellent read. Its good to hear real stories sometimes, not over-hyped crap that many spew out. Just one thing that puzzled me is that he says English is not his first language but that piece was really well written, why does he question his grasp on the English language?

this market is two sided, like most markets: end-user and domainer/collector/investor.

the collector/investor side will always find value in things that can be distinguishable. one of those things is rarity. rarity pays a lot on full fledged bull markets like we had. but is also extremely susceptible to investor moods. problem begins when people start thinking that 6n or above domains are rare. even 5n are risky at current market stage.

the biggest problem of all is buying expensive. buying into frenzy waves are the most costly ones. if your market has risen 10x then you must be utterly careful or you risk being the last buyer in town. at the second half of 2015 there was a clear sign that things would change soon. that was when the biggest gains come to people who have waited and bought low several years before and the biggest lost come to people that were buying without any prudence.

As an “asset collector” domain investor I tend to measure time in decades and not years. So I wouldn’t understand the hardships that this and other “commodity” domainers feel, as they seem to be in a rush to hit a home run with a ground ball rolling at them…..One thing you can always count on, commodity domainers will always be coming and going. Many will leave with a hot potato that will be caught on the drop list by the next victim as the cycle continues.

The past few years blew in a wave of new speculators, as evidenced by the activity described in this article. While the buy and sell two weeks later approach is legitimate activity (who’s to judge), it probably does not add much value in the big picture. It appears emotionally exhausting, unfulfilling unless you are making a profit, and the market for it is volatile and ultimately a house of cards.

What Andrew describes with the farming metaphor is a long-term investing approach that is independent of the short-term profit mentality. It is a broader appreciation of the power and value of a domain name to help business and organizations reach their strategic goals and build their market reputations upon.

These are the different ends of the spectrum in the domaining industry. The successful ones find their place, figure out what works, and build their positions for the long term. The ones who don’t figure it out lose interest, lose money, and get bounced from the game in due time.

Great article Ray, refreshing to see something brutally honest and helps to explain why people often disappear from the scene after initial success.

I think the problem is that selling to other domainers is just a way to raise some cash or get rid of some dogs, it is not a way to make a profit. Not many business buy wholesale to sell wholesale. Might work in a fast rising market but mostly it is a bad idea.

Then again even buying wholesale and selling retail has become a pretty low margin business in my view, the market has matured and people will pay a lot in the wholesale market for anything with genuine enduser appeal.

Registrars are owned by domain name speculators. The practice of registrars farming registrants’ accounts for valuable expiring names is borderline criminal and smacks of ‘conflict of interest’ to the point of being laughable.

Add to that the ability of any registrar to arbitrarily hike registration fees for new gtlds….